During a conference call to discuss the company’s latest earnings, Columbia Care (OTC: CCHWF) (Cboe: CCHW) sounded like the handcuffs were off now that the Cresco Labs albatross has been unwrapped from its neck.
While Columbia Care spoke positively of many states – even California and Colorado – New York remains a problem child. Additional challenges in the quarter also came from the high price of some inherited leases with Innovative Industrial Properties.
No Mo’ Cresco
While the deal with Cresco Labs is no longer on the table, there were some positives from the process. For example, Columbia Care noted that it took a deep dive into how the company was operating as part of the attempted deal.
It seems the exercise is paying off. The company said it plans to make some changes based on that information, such as focusing on its wholesale business.
Jesse Channon, chief commercial officer, said that numerous plans for the company had been put on hold due to the impending transaction, but now the company will accelerate innovation.
“We’re no longer on pause, and we’ve never lost sight of the bigger picture,” he said.
State of the States
Two states where Col-Care is active – California and Colorado – haven’t been growing as quickly as other markets, according to CEO Nicholas Vita, but they’re getting better. And the company has solid hopes for them despite having already made cuts there.
The market in California has been stabilizing, the company noted, a fact that has been overshadowed by the larger growth stories in other states.
In Colorado, a significant number of cultivation licenses are either dormant or not renewed, and the company believes that’s going to continue. While at first glance, seems like a negative, ultimately it’s not.
“If you look at the lack of outdoor growth that’s taking place this year, which typically has a disproportionate downside impact on pricing for the balance of the year and into Q1, all of these look like if you aggregate them up into a more opportunistic landscape for us on a go-forward basis,” President David Hart said.
Vita also continues to be optimistic about Maryland.
“We’re also mindful of the fact that putting our own product on our own shelf results in the highest gross margin opportunity for us in the near term,” he said. ” … But we continue to be as wide open to make sure we’re being balanced in terms of building brand recognition not only in our doors, but also in the wholesale market.”
The toughest criticism was lobbed at New York, where Columbia Care expects to be eligible to enter the adult-use market in the fourth quarter – but Vita isn’t counting on that.
“Should that be a 2024 impact? It should. But we’re not in a place where we have any visibility into what New York is thinking,” he said.
Vita went on to describe the New York program as open but not functioning and that the only beneficiaries have really been the illicit market operators.
The Rent is Too Damn High
Through a variety of deal, Columbia Care also inherited some leases with Innovative Industrial Properties (NYSE: IIPR) that are beyond market rates.
“Our best guess is that those sale-leasebacks are somewhere north of 300 basis points to 500 basis points ahead of where we would be paying if we had just traditional debt structures in place,” he said.
“We’ve already reached out to them to sort of see how we can find a collaborative pathway forward and actually find a more market rate sort of structure that would make sense for us to sort of continue those relationships,” he added.
If what Vita is saying is true, it could mean more bumps ahead in the road for the rent being collected by IIP.